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A TALE OF TWO PERSPECTIVES:GUIDE TO AN HR AUDIT

Scott Cruz

(312) 985-5910

[email protected]

Andrea Goodkin

(312) 429-2284

[email protected]

The Lawyer’s PerspectiveScott Cruz, Attorney

Clark Hill PLC

INITIAL CONSIDERATIONSFOR EMPLOYERS

800-949-3120 | clarkhill.com

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WHAT IS A HUMAN RESOURCES AUDIT?

• A human resources (HR) audit is a systematic formal process, which is designedto examine the strategies, policies, procedures, documentation, structure,systems and practices with respect to an organization’s human resourcemanagement

• This type of audit systematically and scientifically assesses the strengths,limitations, and developmental needs of the existing human resourcesdepartment from the larger point of view of enhancing organizational performanceand ensuring regulatory compliance

• NOTE: The audit should be conducted by professionals with significant HumanResources experience. And, it is recommended that employers work closely withemployment law counsel to better address/correct regulatory and/ornoncompliance issues


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WHY SHOULD AN EMPLOYER CONDUCT AN HR AUDIT?

• HR audits present employers with a comprehensive review of the employer’s currentstate to help determine whether specific practice areas or processes are adequate,legal and effective

• The results obtained from an HR audit can help identify gaps in HR practices, andHR can then prioritize these gaps in an effort to improve processes, minimizelawsuits and regulatory violations

• HR audits help human resources professionals standardize processes, identify riskareas, and tie human resource department goals to strategic business goals


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WHY SHOULD AN EMPLOYER CONDUCT AN HR AUDIT?

A properly conducted audit will help answer the following types of questions:

• What are the employer’s current formal and informal policies?

• Are policies memorialized in writing and applied consistently?

• Where can applicable policies be accessed if not memorialized in writing?

• Who is aware of applicable policies not memorialized in writing?

• Are the employer’s policies and practices in compliance with applicable federal,state, and local employment requirements?

• What mechanisms are in place to ensure compliance with applicable employmentlaws?


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WHAT ARE THE STEPS FOR A SUCCESSFUL HR AUDIT?

• STEP 1: Organize the audit process

• HR professionals, in conjunction with employment counsel, shouldorganize the audit process by working with the employer to identify keyemployees and internal references who have specific knowledge of theHR policies, practices and procedures to be audited

• STEP 2: Determine the scope and type of audit

• Audit scope and complexity will vary according to employer size andbusiness need

• Develop an audit plan that identifies the goals of the audit and creates atimeline for completing the audit.

• If an HR audit has never been conducted, a comprehensive review of allpolicies and procedures is recommended. Going forward, employers maychoose to conduct audits that focus on specific HR functions, such aspayroll or record keeping


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WHAT ARE THE STEPS FOR A SUCCESSFUL HR AUDIT?

• STEP 3: Gather and analyze the data

• Once all applicable documents and forms under the scope of the audithave been gathered, a comprehensive document is developed thatorganizes the materials and elicits on all the subjects to be reviewed

• The audit team (professionals and counsel), will conduct an on-site visit toat the employer’s primary business location, to conduct a comprehensiveanalysis and review

• After all of the necessary information has been analyzed, the next step isto create a report that (1) addresses the findings of the audit, (2) identifiesany strengths and weaknesses found during the audit, and (3) offers asrecommendations to correct any instances of noncompliance

• STEP 4: Develop an action plan and document progress

• The audit team, in conjunction with employment counsel, should jointlydetermine how to analyze audit results, implement the necessary actionplan and/or document progress.

AUDIT TARGET AREAS


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THE HIRING PROCESS


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AUDITING THE HIRING PROCESS

• Key Legal Concerns for Employers:

• Claims of discrimination based on employer hiring practices

• Violations of legal requirements relating to pre-employment backgroundchecks, drug testing and medical examinations

• In Illinois, for example, employers may not inquire into anapplicant’s criminal record until the applicant has been selectedfor an interview by the employer or until after a conditional offerof employment is made to the applicant

• Medical examinations and drug testing should only beconducted after a conditional job offer.

• Penalties imposed for failure to obtain complete and accurate informationon pre-employment verification documents, such as incomplete I-9documentation


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• Documents to Collect and Review:

• Job descriptions for management and entry-level positions

• Job advertisements and internal job postings

• Application for employment

• Background check policies and procedures

• Post-hire paperwork (i.e. state and local tax withholding forms, W-4s and

other deductions from wages)

• Internal policies and procedures regarding interviewing and hiring

• Sample rejection letters

• Sample new hire personnel files

• Available Affirmative Action Plan


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• Best Practices:

• Use application and corresponding employee acknowledgment forms to:(1) acknowledge that the company is an equal opportunity employer; (2)certify accuracy of applicant information, (3) establish an employment at-will relationship, and to (4) shorten applicable statutory limitations periods

• Do not include hiring paperwork with employment applications (i.e., 1-9,W-2, FCRA forms)

• Ensure that background/credit check procedures are compliant withapplicable federal, state and local laws

• Eliminate policies or practices that automatically exclude individualsfrom employment based on criminal record

• Keep applicant criminal history and credit information confidential andonly use for intended purpose


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AUDITING THE HIRING PROCESSES

• Best Practices (cont’d):

• Focus interview questions on whether the applicant is qualified for andable to do the essential functions of the job, document candidatequalifications with objective evaluation forms, and timely notify all rejectedcandidates in writing

• Understand disability protection laws relating to drug tests and medicalexaminations/inquiries

• Develop a streamlined process for ensuring the timely completion of I-9and tax documentation

• Develop objective criteria for conducting internet searches and screeningapplicants’ social media accounts


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EMPLOYER RECORDS ANDAGREEMENTS


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AUDITING EMPLOYMENT RECORDS AND AGREEMENTS


• Incomplete or inaccurate documentation of employment relationship,including the failure to maintain accurate records of job offers and thefailure to execute electronic forms

• Legal claims arising from an employer’s violation of an employee’spreexisting agreement with a former employer (i.e., interference with non-competition and non-solicitation agreements)

• Legal claims based on employer misclassification of workforce (i.e.,employee v. independent contractors)

• Consequences for failure to maintain certain personnel records

• Legal claims arising from for wrongful destruction of employment recordsunder the theory of spoliation of evidence


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• Sample offer letter

• Standard employment agreements

• Independent contractor/sales representatives agreements

• Policies regarding review of personnel files

• Sample personnel file

• Sample medical file


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• Best Practices:

• Ensure that all records relating to the hiring process are maintainedaccording to applicable law

• Develop a streamlined process for verifying whether applicants are boundby agreements with previous employers before making an offer ofemployment

• If independent contractors are used, consult legal counsel to ensure theproper classification of workforce

• Evaluate the process for preparing job offer letters to ensure letterscannot be misconstrued as employment contracts

• Develop a comprehensive procedure for ensuring that agreementsaddressing the employment relationship are fully executed andenforceable (i.e., non-solicitation agreements, non-compete agreements)


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• Ensure that personnel files are maintained in a secure/centralizedonsite/offsite location

• Ensure that documentation of performance discussions and disciplinaryissues is maintained in employee personnel files

• Ensure that I-9 forms and employee medical records are maintainedseparate from employee personnel files

• Ensure that employee medical records are protected from disclosureexcept as permitted by the Health Insurance Portability and AccountabilityAct (HIPAA) and the Americans With Disabilities Act (ADA)

• Train management on employee requests to review personnel file


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EMPLOYER PROCEDURES ANDPOLICIES


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AUDITING EMPLOYER POLICIES AND PROCEDURES


• Discrimination claims based on an employee’s perception of inconsistentapplication of workplace policies or unfair performanceevaluation/disciplinary action processes

• Legal claims resulting from violations of federal or state drug testingrequirements

• Legal claims for harassment or discrimination on basis that employerfailed to take corrective action

• Legal claims for violation of ADA for employer failure to providereasonable accommodations

• Penalties imposed by government entity for failure to display requiredworkplace postings


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• Required workplace postings

• Employee handbook and corresponding acknowledgment

• Records of updates to employee handbook

• Harassment and discrimination policies and complaint/investigation

procedures

• Policies addressing reasonable accommodation

• Policies regarding drug testing procedures

• Policies regarding performance evaluations and adverse action

• Sample job description


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• Best Practices:

• Ensure that all legally mandated employee posters are displayed

• Develop a procedure for conducting regular reviews of job descriptionsand clarifying minimum job qualifications

• Conduct yearly updates to employee handbook to ensure thatmanagement and employees are aware of key equal employmentopportunity, workplace conduct, compensation and leave policies

• Use handbook and corresponding employee acknowledgment forms to:(1) emphasize at-will employment relationship, (2) to shorten applicablestatutory limitations periods, and to (3) detail discrimination/harassmentreporting and complaint procedures

• Implement system for regular evaluation of work rules to ensureconsistent administration of employment matters


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• Ensure that workplace policies are distributed to all employees and obtainadditional acknowledgments when distributing amended revised policies

• Evaluate/implement system for performing regular employee performanceevaluations and ensuring fairness during evaluation process

• Align drug testing policies and procedures with applicable federal, stateand administrative agency requirements

• Execute acknowledgments of policies referenced in the employeehandbook and maintain such agreements in employee personnel files

• Evaluate policies addressing procedures for employment references andwho is designated to provide references.


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COMPENSATION AND LEAVE PRACTICES


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AUDITING COMPENSATION AND LEAVE PRACTICES


• Legal claims alleging violation of the Equal Pay Act and otherdiscrimination statutes

• Legal claims alleging misclassification of employees as “exempt” fromovertime compensation

• Legal claims alleging employer failure to comply with federal and statetime off requirements

• Legal claims alleging employer interference with employee FLMA rights

• Failure to maintain adequate recordkeeping/documentation of hoursworked by both exempt and non-exempt employees (in case of later“misclassification” determination)


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• Recordkeeping/documentation of hours worked by both exempt and non-

exempt employees

• Management and entry-level job descriptions

• Policies and procedures regarding the classification of employees as

“exempt” or “nonexempt”

• Policies and procedures regarding assessment of compensation and

overtime disbursement/pay

• Policies and procedures regarding leave requests

• Recordkeeping of leave requests

• Policies and procedures regarding FMLA leave approval (if applicable)

• Record of FMLA leave


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• Best Practices:

• Maintain detailed records of hours worked for both exempt andnonexempt employees

• Analyze metrics to ensure that employees are compensated based onobjective qualifications

• Evaluate all job descriptions for exempt employees to determine whetherdescriptions meet FLSA requirements

• If the employer is subject to the FMLA, determine whether the employerhas (1) a written policy notifying employees of their FMLA rights and (2)policies and procedures for on-going FMLA compliance

• Develop guidelines and resources to ensure correct application andcoordination of leave policies (i.e., sick leave, vacation leave, PTO)

The Practitioners PerspectiveAndrea Goodkin, SPHR, SHRM-SCP

Executive Vice President, Human Capital Consulting

HUB International

800-949-3120| clarkhill.com

LegalServices provided to ClientName

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STRATEGY, PRACTICE AND FUNCTIONS



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AUDIT RECRUITMENT STRATEGY TO INCREASE SUCCESS RATE

Just developed a brand new recruiting strategy or improving andrefining a current one?

• Undertake a “recruitment strategy audit” to ensure that it’s beingsuccessfully executed and includes:

• Awareness of the strategy andownership

• Alignment with businessstrategies

• Effective interview and selectionprocess

• Use of technology

• Website effectiveness, socialnetworking and employmentbranding

• Use of and coordination withexternal search vendors

• Cost effectiveness and ROI of thehiring process

• Training for those involved in theprocess

• Metrics

• Diversity goals

• Meaningful candidate experience



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ONBOARDING: IT’S ABOUT EQUIPPING, NOT JUST ENGAGING

77% ofemployees thatparticipate in a

formalonboarding

program meettheir first

performancemilestone.

Good onboarding builds a solid foundationfor a successful employment relationship.

• Does your onboarding program include?• Critical “survival skills” for Day I

• One-on-one “jumpstart” coaching with intensivefeedback and support

• Introducing new employees to their work family sothey know co-workers and feel comfortable reachingout for resources

• Activities to promote strong integration, acculturation,and faster speed to productivity

• Use of technology

• Follow up, follow up, and follow up

The Aberdeen Group



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TRAINING, DEVELOPMENT AND PERFORMANCE

Review training programs for alignment withthe company’s mission, vision, values andgoals.• Audit training programs to ensure

comprehensiveness:

• Legal compliance, sexual harassment,discrimination, ethics, diversity and safety

• Leadership skills for new and developingsupervisors

• Job specific skills

• Review Learning Management System (LMS)technology.

• Review metrics to measure effectiveness of trainingprograms.

• Evaluate performance management programs.

87% of Millennial saydevelopment is

important in a job.

Gallup Business Journal, June 30, 2016



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TOTAL REWARDS

• Evaluate total rewards programs to ensure they are meaningful,drive the right behaviors, and support talent attraction andretention.

• Understand “intangible rewards” and consider how they contributeto the overall

• Ensure programs in place address pay equity.

• Evaluate employee access to rewards information and programeducation.



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TECHNOLOGY

• Are processes efficient and fullyintegrated?

• Are systems being utilized to theirfullest extent?

• Do redundant or manualprocesses exist that could beautomated with current systems?

• Are employees and managerstrained on system capabilities andhow to use them?



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EMPLOYEE RELATIONS AND COMMUNICATIONS

Assess the degree to which an HRteam and leadership connect andcommunicate with employees:• Does the company have an employee

communication strategy?

• What channels of communication are primarilyused?

• How does leadership disseminate information andshow visibility?

• Are open door policies and practices in place (andworking)?

• What methods are used to gather employeefeedback?

• How is employee feedback acted upon?

• Are retention strategies in place?

Productivityimproves by

20-25% inorganizations

with connectedemployees.

McKinsey Global Institute Analysis



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SEPARATIONS

Review separation processes toensure consistency, fairness andcompliance

• Are checklists in place?

• Are termination pay practicescompliant?

• Are meaningful exit interviewsconducted?

• Are required notices beingprovided?

• Are available benefits beingshared?



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RESULTS



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RESULTS

QUESTIONS?Scott Cruz

(312) [email protected]

Andrea Goodkin(312) 429-2284

[email protected]

Legal Disclaimer: This document is not intended to give legaladvice. It is comprised of general information. Employers facingspecific issues should seek the assistance of an attorney.